Temporal and spatial dependence of inter-regional risk sharing : evidence from Russia

We present an analysis of interregional consumption risk sharing in Russia between 1999 and 2009 using novel estimation methods. In addition to standard fixed effects panel estimations, we use system and difference GMM estimators to reflect time dynamic properties and possible endogeneity between output and consumption. Furthermore, we apply spatial models that control for spatial dependence across regions. The results show that regional consumption deviations from the national average are highly persistent in time and space. Nevertheless, regional consumption risk sharing in Russia is relatively high with 70 to 90 per cent of idiosyncratic risk being smoothed. Finally, fiscal policy and the degree of financial development appear to contribute to the consumption smoothing.